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Taylor Wimpey - on track for guidance, outlook uncertain

Taylor Wimpey achieved a net private sales rate of 0.74 homes per outlet per week, down from 0.95 a year ago, in the year to date.

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Taylor Wimpey achieved a net private sales rate of 0.74 homes per outlet per week, down from 0.95 a year ago, in the year to date. More recently, that dropped to 0.51 as economic uncertainty impacted potential buyers.

Cancellation rates increased over the second half of the year to date, up from 14% to 24%. Year to date cancellation rates are at 18%.

As of 6 November, the total order book, excluding join ventures, stood at around £2.6bn. That's down from £2.8bn the prior year. At the end of October, the short term landbank stood at 86,000 plots, with a total strategic pipeline of 145,000.

The group has slowed down the pace of its land buying, in response to tougher conditions. Year to date approvals of around 7,000 are broadly in line with the position at the half year mark.

Build cost inflation remains around 9-10%.

The group expects to end the year with net cash of £800m and remains on track to generate underlying operating profit of £922m, with volumes on par with 2021 levels.

The shares rose 1.2% following the announcement.

View the latest Taylor Wimpey share price and how to deal

Our view

Trading for Taylor Wimpey is starting to reflect the difficult economic conditions. Full year guidance remains intact, but an increase in cancelations and drop in sales volumes over the past few month's points to trouble ahead.

This isn't a major shock, though, and Taylor Wimpey's valuation has already built in a lot of pain to come with the shares down around 45% so far this year. House prices have risen for a while, and whilst there's some weakness coming through, affordability remains a struggle for many potential buyers. Add to that the fact mortgage rates have risen sharply and inflation's eating away at real income, you've got a recipe for falling demand.

Demand isn't the only headwind, though. The sector's facing ongoing labour and supply chain challenges and sector wide planning permission disruptions are a thorn in the side. But Taylor Wimpey's position is better than some, with 99% of 2023 planned completions having planning in place.

Housebuilders are, by definition, cyclical businesses; performance has often risen and fallen along with broader economic conditions so it's important to look at the big picture when the downturns come round. Although of course past performance is not a guide to the future.

With that in mind, there are some positives. The landbank is a particular strength for the group, who've built a robust bank of potential projects. The focus now is bringing plots on-line, with new land spend looking more at maintaining, rather than adding to, the land bank. That's wise, given the cost of land has been increasing and the outlook's less favourable.

There are also some underlying tailwinds supporting the longer-term market. Brits are ideologically committed to home ownership and the countries been in a prolonged period of housing undersupply, a trend that's unlikely to change anytime soon.

The balance sheet's in good shape too, and the group expects to end the year with net cash of £800m - that's certainly a benefit if conditions do get worse. Management is committed to achieving margins between 21% and 22%, progress was expected to continue this year but that could be under pressure.

Taylor Wimpey's current dividend policy is linked to asset value, rather than earnings. That means investors are more likely to receive a base level of dividend even in a downturn. Even so, the near 10% prospective dividend yield looks unlikely to stay quite as lofty for long and as we've seen with rival Persimmon, dividend policies can change on a dime. No dividends are guaranteed.

Taylor Wimpey doesn't boast the margins of some of its more specialist peers and a good deal of pain's built into the valuation which is a good way below its longer-term average. As far as broad-based exposure to the UK housing market goes, Taylor Wimpey looks to be in as robust a position as it could be for now.

Taylor Wimpey key facts

All ratios are sourced from Refinitiv. Please remember yields are variable and not a reliable indicator of future income. Keep in mind key figures shouldn't be looked at on their own - it's important to understand the big picture.

This article is original Hargreaves Lansdown content, published by Hargreaves Lansdown. It was correct as at the date of publication, and our views may have changed since then. Unless otherwise stated estimates, including prospective yields, are a consensus of analyst forecasts provided by Refinitiv. These estimates are not a reliable indicator of future performance. Yields are variable and not guaranteed. Investments rise and fall in value so investors could make a loss.

This article is not advice or a recommendation to buy, sell or hold any investment. No view is given on the present or future value or price of any investment, and investors should form their own view on any proposed investment. This article has not been prepared in accordance with legal requirements designed to promote the independence of investment research and is considered a marketing communication. Non-independent research is not subject to FCA rules prohibiting dealing ahead of research, however HL has put controls in place (including dealing restrictions, physical and information barriers) to manage potential conflicts of interest presented by such dealing. Please see our full non-independent research disclosure for more information.

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Written by
Matt Britzman
Equity Analyst

Matt is an Equity Analyst on the share research team, providing up-to-date research and analysis on individual companies and wider sectors.

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Article history
Published: 9th November 2022